This paper examines the costs borne by financial institutions, merchants, and consumers
in making, facilitating and accepting consumer-to-business payments. It examines
the resource costs incurred by these sectors, how these have changed since
2006, and how fees and other transfers determine which sectors ultimately bear
these costs. It also examines how resource costs vary at different transaction
sizes and, for merchants, how costs differ between small and large entities.

The results suggest that the resource costs of the payments system have fallen as
a per cent of GDP since 2006. On a per transaction basis, direct debit remains
the lowest-cost payment instrument while cheques remain the most expensive.
At the point of sale, payments using cash, eftpos and contactless MasterCard
& Visa debit cards have broadly similar costs for transactions under about
$20; above $20, eftpos is the lowest-cost payment method. The results indicate
that the relationship between resource and private costs varies significantly
across instruments. The greater share of the overall cost is borne by merchants.
The consumer undertaking a transaction typically pays a small proportion of
its cost; consumers face a similar cost for credit card payments as for debit
card payments despite the higher cost of credit cards to the economy. Finally,
the results suggest that small businesses incur higher costs than large merchants.